This is a quantitatively heavy investment decision case requiring the candidate to build a market sizing model, apply pricing insights from demand curves, and calculate profitability metrics. The key analytical insight is recognizing that post-saturation, revenues drop to replacement demand (new births), creating a finite high-value market window. The case tests whether candidates can identify the addressable market using the infection rate distribution curve and translate that into a breakeven and NPV analysis.
Your client is a large pharmaceutical drug company working on a vaccine for chicken pox. The vaccine needs to pass three phases of testing to be approved by the FDA. It has just completed the second phase, and the client is asking for your help to decide if they should fund the third phase. The third phase would last 2 years and cost $300M. Results from previous phases indicate the vaccine has a 95% chance of approval. We would be able to start producing vaccine immediately following approval.
Should our client invest or not?